Global shares rose on Wednesday, as investors took heart from a greater degree of stability in the banking sector, but the sense of optimism wasn't robust enough to severely knock safe-haven assets like bonds or gold.
Meanwhile, shares in Asia rallied on Wednesday after Chinese conglomerate Alibaba's (9988.HK) plans to split into six units lifted tech stocks.
The sale of assets in Silicon Valley Bank (SVB), the regional lender that collapsed earlier this month, has helped prop up investor risk appetite. Certain measures of market stress have eased, which has given equities, cryptocurrencies and commodities a boost in the last couple of weeks.
The MSCI All-World index (. MIWD00000PUS) rose 0.3% while European shares (.STOXX) gained 0.92%, thanks in part to a rise in bank shares after UBS (UBSG.S) said it would rehire Sergio Ermotti to lead the company after its takeover of Credit Suisse (CSGN.S).
The economic backdrop is healthier than it was six months ago and, despite some parallels with the financial crisis of 2008, the current issues in the banking sector appear more contained for now. But, given the uncertainty over the outlook for global interest rates, the mood is nervous.
"Sentiment is skittish at the moment and market will be prone to swings," Kallum Pickering, senior economist at Berenberg, said.
In the first congressional hearing into the collapse of two US regional lenders, lawmakers pressed the Federal Reserve's top banking regulator on whether the central bank should have been more aggressive in its oversight of SVB.
Michael Barr, the Fed's vice chairman for supervision, criticized SVB for going months without a chief risk officer and how it modelled interest rate risk.
"From a macroeconomic perspective, we should be relaxed about the fact that major banks, on both sides of the Atlantic, are well capitalized, have lots of deposits, and regulators and central banks seem absolutely committed to preventing any significant systemic event," Pickering said.
"What we're trying to factor into the macroeconomic picture as a result of these banking stresses is a degree of liquidity hoarding and some cautious lending behavior by the banks until they can fully understand the effects of monetary-policy tightening," he added.
The US regional KBW bank index (. BKX) has fallen 3.3% in the last week, but is still above its recent six-week lows.
"Investors have not completely lost their anxiety …
https://www.reuters.com/markets/global-markets-wrapup-1-2023-03-29/ and hints of a big regulatory overhaul are likely to weigh on the (banking) sector until details emerge," said Robert Carnell, regional head of research, Asia Pacific at ING.
A survey on Tuesday showed US consumer confidence unexpectedly increased in March, despite recent financial market turmoil, but Americans continued to expect inflation to remain elevated over the next year.
A separate survey on Wednesday showed German consumer sentiment is set to improve in April, thanks to a drop in energy prices, although a full recovery isn't likely any time soon.
Worries over inflation have prompted investors to reassess their expectations for monetary policy from a number of major central banks, including the European Central Bank and the Federal Reserve.
Markets are now pricing in a 60% chance of the Fed leaving interest rates unchanged at its next meeting.
The dollar index, which measures the performance of the US currency against six others, was roughly flat on the day at 102.46.
E-mini futures for the S&P 500 rose 0.92%, suggesting a buoyant start to trading later.
In the currency markets, the euro was up 0.14% at $1.0862, while sterling rose 0.15% to $1.2359.
The Japanese yen, a go-to safe-haven for many, fell 0.6% against the dollar to 131.65 per dollar, after rising 0.5% the day before.
US Treasury yields edged lower, leaving the benchmark 10-year note down 3 basis points at 3.539% and the two-year note yield down 6 basis points at 4.006%.
Two-year yields have risen by a full 50 bps from Friday's six-month lows, reflecting greater investor confidence.
Gold meanwhile fell 0.3% to $1,965 an ounce, but was still within sight of last week's highs around $2,000.
In commodities, oil gained for a third straight day on improving market sentiment and as a halt to some exports from Iraqi Kurdistan raised concerns of tightening supply. US crude rose 0.59% to $73.63 per barrel and Brent was at $79.27, up 0.8% on the day, while US crude futures rose 1.1% to $74 a barrel.